How to Calculate LMI: Step-by-Step Guide

Lenders Mortgage Insurance can add thousands to your home purchase — but most people have no idea how it's actually calculated until their broker gives them the number at loan approval. By then, it's a done deal.

Understanding the calculation lets you plan ahead, compare scenarios, and make informed decisions about your deposit size. Here's the step-by-step process.

Step 1: Calculate your Loan-to-Value Ratio (LVR)

LVR is the foundation of the LMI calculation. The formula is simple:

LVR = (Loan Amount ÷ Property Value) × 100

Examples:

• Property: $700,000, Deposit: $70,000 → Loan: $630,000 → LVR: 90%
• Property: $700,000, Deposit: $105,000 → Loan: $595,000 → LVR: 85%
• Property: $700,000, Deposit: $140,000 → Loan: $560,000 → LVR: 80% → No LMI

Important: When calculating LVR, the lender uses the lower of the purchase price and the bank valuation. If you buy for $700,000 but the bank values it at $680,000, your LVR is calculated on $680,000 — meaning you'll need a larger deposit to hit your target LVR.

Step 2: Determine the LVR band

LMI insurers group LVR into bands. Each band has a different premium rate. The key bands are:

These are indicative ranges. Exact rates vary by insurer, lender, and loan amount band.

Step 3: Apply the premium rate to your loan amount

Once you know your LVR band and the applicable premium rate:

LMI Premium = Loan Amount × Premium Rate

Worked example

• Property: $800,000
• Deposit: $80,000 (10%)
• Loan: $720,000
• LVR: 90%
• Indicative premium rate: ~2.1% (for this LVR band and loan size)
• LMI = $720,000 × 2.1% = $15,120

Step 4: Add stamp duty on LMI (in some states)

Some states charge stamp duty on the LMI premium itself — yes, a tax on an insurance premium. This adds approximately 9-10% to the LMI cost in states like NSW and VIC.

Continuing the example: $15,120 × 10% stamp duty = $1,512 additional. Total LMI cost: $16,632.

Step 5: Decide how to pay

You have two options:

1. Pay upfront at settlement: Cleanest option. You pay $16,632 from your settlement funds.
2. Capitalise onto the loan: The LMI gets added to your loan balance. Your loan becomes $720,000 + $16,632 = $736,632. You pay interest on the LMI for the life of the loan — at 6.2% over 30 years, that $16,632 in LMI costs an additional ~$20,000 in interest, making the true cost roughly $36,600.

Why exact LMI is hard to calculate yourself

The premium tables used by Helia (formerly Genworth) and QBE LMI are not simple percentage bands. They have:

• Multiple loan amount bands within each LVR band (a $400,000 loan at 90% LVR gets a different rate than an $800,000 loan at 90% LVR)
• Different rates for different borrower types (owner-occupier vs investor, P&I vs interest-only)
• State-based stamp duty on the premium itself
• Lender-specific adjustments (some lenders negotiate bulk discounts with insurers)

This is why an LMI calculator is so useful — it applies the correct premium table for your specific scenario.

The marginal cost of each LVR point

Understanding the "cost per LVR point" helps you decide whether saving more deposit is worth it:

For an $800,000 property:

• 95% → 90% LVR: Save approximately $15,000–$20,000 in LMI (but need $40,000 more deposit)
• 90% → 85% LVR: Save approximately $8,000–$12,000 in LMI (need $40,000 more deposit)
• 85% → 80% LVR: Save approximately $5,000–$8,000 in LMI (need $40,000 more deposit)

The biggest LMI savings come from getting below 90% LVR. Each dollar of additional deposit above 90% LVR saves you proportionally more in LMI than each dollar below 85%.

Quick LMI estimation shortcut

Don't want to use a calculator? Here's a rough mental model:

• 85% LVR: ~1% of loan amount
• 90% LVR: ~2% of loan amount
• 95% LVR: ~3.5% of loan amount

For a $600,000 loan: at 85% LVR ≈ $6,000, at 90% LVR ≈ $12,000, at 95% LVR ≈ $21,000. These are ballpark figures — use our calculator for accuracy.